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Steps for protecting a business from a divorce

On Behalf of | Nov 15, 2022 | Divorce |

As a community property state, Wisconsin law generally requires divorcing couples to split their assets 50/50, unless they come to a different arrangement. For a business owner, this could cause a liquidity crisis if you lack sufficient funds to pay out half of the business’s value to a spouse. You might need to sell the business or shift your stock into your ex-spouse’s hands. Ideally, business owners install barriers to business disruption long before a marriage ends in the form of a prenuptial or postnuptial agreement.

Planning for worst-case scenarios

People with businesses have a strong interest in thinking through what a divorce would do to their assets before saying “I do.” With a premarital agreement, you and your future spouse may agree ahead of time on a business valuation method and division of assets. These agreements remove most unpredictability from the divorce equation. If you are newly married and did not execute a prenuptial agreement, you can still accomplish the same goals with a postnuptial agreement.

Placing a business in a trust

In some cases, shifting your business into a trust may make sense. This move effectively removes you as an owner. As a result, business assets will no longer be part of the marital estate.

However, you cannot take this route when you suspect your marriage might dissolve. Any whiff that you did this to avoid splitting your assets in a divorce opens you up to accusations of fraud. Signing your assets over to a trust also has other consequences that you should explore thoroughly.

Pay yourself a higher salary

Are you taking very little pay in order to help the financial position of your company? Although this may feel right to you, in the event of a divorce, your low pay leaves more business assets on the table for division.

Your higher income will influence other aspects of the divorce, like child support or division of savings, but over the years it could reduce the value of your business. A business with a lower value shields you somewhat from a huge divorce settlement.